As Stocks Fall, Some Hedge Funds Outperform

Despite a tumultuous year marked by uneven performance, capital returns and investor criticism of the hedge-fund industry, some of its biggest names are now comfortably in the black — and a few are in double-digit territory.

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Third Point, Greenlight Capital, and SAC Capital were up 13.8 percent, 11.4 percent, and about 10 percent respectively through Oct. 31, according to investors and others familiar with their returns, reflecting some winning stock positions, like Greenlight co-founder David Einhorn's short position in Chipotle Mexican Grill, as well as other bets, like Third Point manager Dan Loeb's purchase of undervalued Greek bonds. Those performances came during a month where the average hedge fund fell about a half a percentage point, according to HFR, leaving the industry as a whole up about 4 percent.

Notwithstanding a handful of impressive hedge-fund performances, some investors have been tough on the industry as a whole, arguing that hedge fund returns should at least match the S&P 500, which earlier this fall was up more than 16 percent — a level higher than where most funds were performing. But since then the benchmark has given back some of that territory, and is now up only about 10 percent on the year.

Critics have also argued that hedge-fund fees are too high and that pulling capital in response to disappointing performance is too difficult. Late in October, some investors were particularly put off when Mark Yusko, who manages the $3.3 billion Endowment Fund, opted to "gate" or limit investor redemptions, marking an unwelcome return to a way of preserving hedge-fund investment capital that became popular during the financial crisis. (Read More: For Hedge Funds, a Half Percent Is the New Move)

To some, the increasing skepticism comes as no surprise in a world where the average hedge fund lost more than 5 percent of investor capital last year, according to HFR, and is underperforming blue-chip stocks to a considerable degree this year.

"Investors today are betting on a record year every year for hedge funds…and they're not paying enough attention to the size of the industry," says Simon Lack, an investment advisor who believes that at roughly $2 trillion in total assets under management, the hedge-fund business is simply too big to generate the outsize returns it enjoyed ten or more years ago. Even so, he adds, "there are some fantastic hedge funds and there are some happy clients."

Some of those clients are invested in Third Point, Greenlight, SAC, or PointState, the $5 billion hedge fund founded by alumni of Duquesne Capital, the revered hedge fund run by Stanley Druckenmiller, after he closed Duquesne two years ago. This past April, a management reshuffle at PointState left a new CEO, Zachary Schreiber, in charge, and the fund has found more solid footing since then, according to one of its investors, churning out 8.7 percent returns through October.

At the same time, fortunes are improving at some of the largest macro funds, funds that express a global economic outlook through everything from bonds to currencies. Moore Global, run by veteran trader Louis Moore Bacon, is up 4.16 percent through October, say people familiar with his performance, despite Bacon's recent decision to return investor capital amid a shortage of good market opportunities. (Read More: A Secretive Hedge Fund Legend Prepares to Surface)

Tudor BVI, the flagship fund of Paul Tudor Jones, is up 2.38 percent for the same period, say people familiar with its performance, and insiders say that Brevan Howard's multistrategy fund is up 2.6 percent.

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